ING Groep N.V. Price & Performance (ING)

This reduction in costs against the background of persistent inflation was underpinned by a continued moderation in feed costs combined with the strong cost management outcomes which have substantially offset inflation. We are successfully navigating the changes to our customer portfolio As of today, we have secured new business in retail and QSR channels equivalent for approximately 75% of the Woolworths volume reduction. [indiscernible] Importantly, we have maintained a disciplined approach to pricing. As shown by an increase in core poultry NSP of 1%, versus the prior corresponding period with Bostocks Brothers acquisition contributing 30 basins basis points to group NSP growth. The first half saw a shift in channel mix with volume moving into retail from wholesale. Combined with a strong growth in biocorex volume, following the transition of some third party wholesale sales to in house processing which was supported by our recent investments in automation. In New Zealand, we settled the acquisition of Bostocks, on July 1. The integration is on track and the business is performing in line with expectations. This table summarizes the key financial outcomes during the period. You will notice that several of our key indicators are lower than the prior corresponding period.

As I noted, our FY 'twenty four result beating the first half 02/2024 results, this period was always going to be challenging. As we navigate near term changes throughout customer portfolio and the effects of inflation on consumer conditions. Notwithstanding that, our first half twenty five results are very solid set of numbers, and the company is positioned well for future growth. Core poultry volume declined 2.7% versus ACP due mainly to a decline in Australian volume due to a temporary reduction in bird numbers, processed during the period to manage both second half 'twenty four inventory levels and the transition to the new Woolworths supply agreement. The New Zealand business recorded strong core poultry volume growth of 5% driven by growth in both retail and export channels, where the acquisition of Bostocks contributing 2.9 percentage points of New Zealand's volume growth. As you'll note, on the chart on the right of the slide, it is encouraged to see positive volume growth trend across Australia, New Zealand, and key channels versus the normalized second half of FY 24 volumes. Turning now to look at conditions across various channels during the first half. Retail volumes continued their growth during the period.

With New Zealand retail volumes also benefiting from the acquisition of Bostock. While QSR volume was lower than the prior period in both markets, we we are seeing signs that the performance of this channel is stabilizing. Across the other channels, wholesale volumes were lower than prior corresponding period after we took some customer sales volume back in house, while export volumes were affected in varying degrees in both Australia and New Zealand by avian influenza outbreak In both countries, these outbreaks were substantially confined to table egg farms. As we noted in our FY 2025 guidance that was given at our FY 2024 results, in August, we expect to deliver modest NSP growth this financial year. Consistent with that outlook, group GS Group NSP increased 1% versus the prior corresponding period, to $6.34 In Australia, we saw growth in both retail and QSR, which was partially offset by weaker wholesale pricing. Notwithstanding this, Australian NSP increased by 1.6% In New Zealand, the acquisition of Austox made a solid contribution to NSP growth, contributing 4.9 percentage points to retail growth, and 2.3 percentage points to overall New Zealand NSP growth during Excluding BOSSTOKS, New Zealand NSP declined 1.7% on a PCP.

I'd now like to hand over to Garik present the financial results in more detail.

Thanks, Andrew, and good morning, everyone. Commencing with our profit and loss for the half, As Andrew noted earlier, overall, the company has achieved a pleasing set of financial results albeit we achieved record results in the prior comparative period.

Revenue decreased by 1.9% in line with the decline in volume to 1,600,000,000.0 compared to PCP. The decline in core poultry volume was partially off There was also a 3.3% decline in external feed revenue resulting from a reduction. In feed NSP due to lower key feed input costs Within core poultry, the wholesale NSP declined 8.2% versus PCP, reflecting the progressive post COVID recovery in share and supply. Total costs within EBITDA were $12,400,000 lower versus PCP. Within the movement in total costs, internal feed costs declined $34,000,000 reflecting the improvement in market pricing, key feed inputs over the As a result of the conversion of 102 contract to variable performance based contracts over the past eighteen months, There was a higher operating cost effect of $21,100,000 as more of the grower contract costs are now included within EBITDA, having previously been recorded in double ASB 16 interest and depreciation costs. As you would appreciate, there was no impact on pre AAASB 16 EBITDA from this. Excluding internal feed costs, operating costs for the new Bostocks acquisition and AASB 16 related amounts slide, all other costs were $9,600,000 lower than PCP with lower volumes and the implementation of a wide variety of cost management initiatives can further operational efficiencies.

Appreciation declined 17.8% due largely to a reduction in SaaS 16 depreciation relating to the conversion of the contract growers. Finally, our net finance expense declined 9.8% also from the reduction in AASB 16 interest partially offset by a higher average debt balance including the settlement of the acquisition of Bostocks in July 2024. Now turning to the balance sheet. Inventories and biologicals declined $27,500,000 on PCP due to a combination of seasonal reduction in Turkey inventory benefit of inventory management initiatives implemented in the second half of twenty twenty four to reduce further processed poultry inventories and a reduction in feed inventories due to lower first half purchasing and a decline in fee costs. As you can see, right of use assets and lease liability both declined significantly versus June 2024 which is largely due to the conversion of 36 grower contracts since June 2024.

To performance based variable contracts.

Net debt increased $49,400,000 including the settlement of Yac acquisition of Bostocks. In New Zealand, while a small increase in our leverage ratio to 1.8x sees it remain within our target range of one to two times.

Moving now to cash flow.

We saw an improvement in cash conversion in the first half to 94.5% as a result of improved working capital, in particular, CapEx and acquisitions totaled $69,700,000 $11,500,000 of core and high growth project investment And as noted earlier, settlement of Bostocks Dividends paid in the period related relates to the final FY 2024 fully franked dividend of $0.08 per share. AAASB 16 interest and principal payments declined $20,000,000 due to the conversion of the contract grower contracts and the acquisition of the previously leased Bolivar primary processing plant. Turning now to capital expenditure. We classify our capital expenditure to three main areas: sustaining, investing and strategic CapEx. During the half, sustaining CapEx was $26,900,000 which was 91% of the pre 16 depreciation. There was $11,500,000 of investing project expenditures including $3,000,000 on water jet cutting projects in Australia and New Zealand, dollars 2,700,000.0 on the Engelburn value enhanced decoupling, project, dollars 2,100,000.0, the fully compliant upgrade at Lissro and $1,500,000 for the upgrade of our New Zealand Bird retrieval facility. Receivable facilities. Strategic CapEx for the period related to the Bostocks acquisition. Our leverage of 1.8 times remains within our target range of one to two times, During the period, we refinanced our existing syndicated financing [indiscernible] An increase in the total size of the combined facilities of $200,000,000 combined with an increase in the weighted maturity by approximately two point four years, provides funding flexibility to progress our various operational and automation investment programs and to take advantage of other opportunities.

That may arise. Our sustaining CapEx is tracking well against our target depreciation rate. And as I outlined on the previous slide, we continue to execute on several core and high growth projects. Today, we have also declared a fully franked final dividend fully franked interim dividend of $0.11 per share Turning now to the feed market. As regular followers of Binghams will know, Inghams' actual fee pricing will differ to the market data presented here. Due to a variety of factors. Relating to the purchasing and pricing of delivered grain soybean meal, that we use as well as the level of forward cover that we may hold at any given point in time. We continue to hold between three and nine months of forward cover as is our policy.

The observed pricing of key feed inputs has been moderating since mid to late FY twenty twenty three, noting that Australian wheat prices have been slower to adjust soybean prices over this time. Observe wheat prices have declined approximately 10% and soy prices declined approximately 16% during the first half.

Global soybean production forecast predict growth of approximately 6% year on year as a result of supply conditions, pricing is expected to remain subdued through 2025. Noting, however, any escalation in global trade tensions could result in increased price volatility. In terms of wheat, Australia has had another strong harvest twenty four-twenty five with production forecast increased by 26% year on year. While international demand has been lower, domestic demand remains firm. Rainfall forecasts are encouraging for pre planting period for next crop suggesting potential for another favorable production year. I'll now hand back to Andrew to discuss the segment performance.

Thanks, Gary. Okay. Turning to Australia. Core poultry volume declined 4.1% versus PCP due to a temporary reduction in the number of birds processed during the period to both manage both further process inventory levels in the second half of FY 'twenty four and the transition to the new Woolworths supply grid. Revenue declined 2.5% on a PCP with a decline in core poultry volume partially offset by core poultry net selling price growth of 1.6%. A small reduction in byproducts revenue was driven by a strong volume growth in the transition of some third party wholesale sales to in house processing. The temporary closure of export markets due to earlier avian influenza outbreaks at non Inghams farms and a change in Turkey rendering arrangements resulting in the sale of higher weight raw material offset by lower byproducts pricing. Growth in external feed volumes was offset by decline in pricing reflecting the reduction in key feed imports. Total underlying pre AAASB 16 cost declined 2% with internal feed costs declining $27,800,000 and cost management initiatives successfully limiting the growth of other costs to $2,700,000 Turning to New Zealand, core poultry volume increased 5% versus Pleasing Pile. Driven by growth in both retail and export channels.

With Bostock's contribution during the period matching our expectations. External feed volumes declined 5.1% versus PCP due to an increase in internal feed requirements and a reduction in external customer business. New Zealand revenue increased 1.5% versus PCP. Due to the combination of core poultry volume growth and growth in core poultry NSP of 0.6%. Partially offset by lower bioproducts revenue and a reduction in external feed revenue due to a decline in feed NSP as a result of lower key feed inputs. Excluding the acquisition of Bostock, New Zealand NSP growth was minus 1.7% Total underlying costs pre AAASB sixteen increased 3.9% versus PCP due largely an increase in volume in operating costs from the Bostocks and Brom Park acquisitions and growth in various key operational expenditures. Internal feed costs improved by $6,200,000 during the period due to a decline in international [indiscernible] Contribution following settlement of the acquisition on the July 1. The business provided incremental additional volume one kiloton represents 2.9%.

Digit points of New Zealand's core poultry volume growth. On an NSP basis, Moll Stocks contributed 4.9 So New Zealand retail NSP growth and 2.3% to overall New Zealand NSP growth. Excuse me. From an earnings perspective, Bostocks made a first half EBITDA contribution of New Zealand $1,400,000 broadly in line with expectations. Turning now to our guidance and outlook. Today, we are reaffirming our current guidance for FY 2025.

Which is for core poultry volumes to decline by 1% to 3% versus the normalized FY 'twenty four volume outcome. And for underlying EBITDA pre SBSB 16 of between $236,000,000 and $250,000,000 which will represent growth on FY In Australia, the near term outlook for consumer conditions remains as higher living costs and ongoing inflationary pressures continue to influence consumer behavior. With that said, this week's widely expected decision by the Reserve Bank of Australia to reach the official cash rate signals the start of the gradual easing cycle. Which as it progresses should provide some much needed relief and support to consumers and economic growth in Australia. Following a series of interest rate cuts in New Zealand, consumer conditions have shown some signs of improvement, with further support coming from this week's additional 50 basis points cut official cash rate. While the rate of inflation in New Zealand has moderated significantly, cost of living pressures remain a challenge for households. FY 2025 core vault pork poultry volume guidance reflects the phased introduction of the new Woolworths supply agreement the timing commencement of new business, and the ongoing effects of cost of living pressures on consumer discretionary spending. We expect core poultry net selling prices to show modest growth in FY 2025.

Based on current commodity pricing levels and observed trends, we expect some net benefit from lower key fee costs in FY 'twenty five. We are successfully minimizing cost growth across the business and continue to expect to deliver annualized cost savings through procurement, operational and continuous improvement initiatives that will significantly contribute to offsetting These general inflationary effects Finally, total capital expenditure and acquisitions in the range of $100,000,000 to $120,000,000 is forecast for FY 2025. So before we move to questions, I'd like to make a few general remarks about the We believe that Inghams represents a compelling proposition. We have deep relationships with our customers who prioritize poultry. We operate at scale which translates to efficiency in a large and growing market executing against relevant consumer insights, This provides a platform for delivering robust attractive earnings over the long term. We are leaders in safety, quality, [indiscernible] We have the right capabilities and experience to execute our strategic plan and that is underpinned by the financial strength and flexibility that enables us to invest for growth. Okay, that does include our formal presentation. So I'll now hand back to the operator and we'll take your questions. Thank you, Andrew.

Participants can ask both text and live audio To ensure all participants have an opportunity to ask a question, we will initially limit questions to three per participant. Following which, you can rejoin the queue to ask further questions. Time permitting. Type your question in the box towards the top of the screen, To ask a live audio question, press the request to speak button at the top of the broadcast window. The broadcast will be replaced by the audio questions interface press join queue and if prompted select allow in the pop up to grant access to your microphone. A backup phone line is available. Dial in details can be found on the request to speak page or on the Home tab asking audio questions. I will introduce each caller by name and ask you to go ahead. Will then hear a beep indicating your microphone is live. And our first caller comes from Ben Gilbert from Jarden. Please go ahead.

Andrew and Garrett. Just the first question, there's obviously a big chunk of supply in theory are going to be coming on towards the end of this year and into next year in New South Wales from one of your competitors. Just in terms of contracts and risk of something else similar to the Woolworths contract, which you've done a great job recovering, how do you see that and how you're planning for that? And do you envisage any risk around contracts over twelve to eighteen months on the back of [indiscernible] quickly say there's no risk in that timeframe. In terms of what we know about currently secured business. Secondly, [indiscernible] we've talked about this before, Ben in different conversations. [indiscernible] that new capacity while it will come on stream will be phased In the first instance, we expect it will be absorbing volume from other facilities that will be closed. So it won't be a sum flood of new capacity or new volume into the market in in that timeframe and we'll come on gradually over the next number of years. So our way thinking about that is that things should be relatively stable through that period that you're talking about.

That's great. Then the second one for me. Just in terms of market rationality, I was surprised to see how much a reduction you guys have had in your wholesale market volume. Just it feels like from a more recently wholesale pricing has been a bit more mixed. How are you seeing market rationality in terms of pricing and tendering? Generally around terms in the market?

Again, I haven't seen we haven't witnessed any considerable change from the normal environment in which we operate. I guess there's been a bit more inventory in the market or product in the market for a couple of reasons. One is just that recovery. Everyone's been recovering sort of post COVID and building up stocks. And I think also we've had a bit of movement in contract The rule was one thing that may want, so there's probably some little bit of extra setting to give people to have won some of that business some safety in terms of their stocks and what have you. So that's probably contributed some extent to the wholesale market being a little more subdued, price being down. Also [indiscernible] chicken meat, haven't affected export markets. So some of that volume has stayed onshore as well. But in general, our observation would be that there hasn't been any particularly significant change in which the Great. Then just follow-up, maybe to you Gary or Andrew's I appreciate probably no such thing as a normal year. The world of poultry, different feed and everything. But in a normal year, in theory, should there be much seasonality in your earnings half to half?

And [indiscernible] You've obviously got some tailwinds that fade into the second half. You're recovering these volumes. Understanding how we should think about seasonality or what's equal from 1H to 2H? Hi, Ben. Yes.

We have had seasonality across history. Tends to be lower volumes in the second half, both through demand and also available production days as well in that period. So we've talked about mean, I agree, when's a normal year? But we've talked about roughly the first half is 51% or 52% of earnings. If you look back The next question comes from Craig Wolfhard from MST Marche. Good morning, Andrew and Gary.

So my first question just on the New Zealand business and the what is underlying excluding Bostock quite meaningful gross margin pressure you just give us a bit more I guess, background on that and you see that persisting into the second half? [indiscernible] Yes, I think it's hi, Craig.

Look, I think what we're seeing there is a little bit of a mix issue. In the market particularly with the cost of living pressures. So there's been that's the principal driver behind that change and some cost pressure as well. I don't think it's a big underlying change in that business long term. I think it's something more of the short term. And particularly as we see some of the as I noted in the formal presentation, we are seeing some consumer confidence coming back into the New Zealand market. Now they've had, I think, up to three three rate changes in [indiscernible] is start to improve some of that discretion we spend that will favor both QSR and some of the sort of the the higher value poultry options like free range and what have you. So I don't see it as being an underlying change, just some short term pressures.

Understood. The second question is about obviously the ability to win some new business in Australia. Against the loss of Woolworths volumes over this year. And it is great to see, and I know this is a sensitive topic for you to address, but how do we think about it from an overall market perspective? Is it Inghams loses a bit of business from Woolworths and your major competitors pick up that and you pick up some of theirs like is there anyone that's a net loser out of this? Or how do we understand if you've won some other business and lost Woolworths, how it all ties together from an overall industry perspective?

Yes, it's an interesting question I mean, obviously, we I think we've done a very good job to recover as much as we have in the relatively short period of time. And that's primarily come from retail customers. So us being able to improve business with both Coles, Audi and Metcash across that timeframe. But there's also been some QSR wins in there as well. Which has been good for us. So look, how it plays out over the long term, we'll have to wait and wait and see. I think it's it will be again over the next number of years we'll have a more diverse customer base, frankly, and we'll have a better balance in our in our customer base. And I think that's going to be certainly healthy for Inghams, probably healthy for the market overall as well. Terms of market rationality. But I think as we work our way through this, we were confident When we talked to this and our results six months ago, six, seven months ago, we were confident it was a manageable transition and we navigate through it. And the impact would be a better balanced customer portfolio And I think these results demonstrate that we're making good progress towards that.

Understood. And it's been a busy day, but just trying to understand that a group level the gross margin outcome, I haven't had a chance to go into the intricate details. Obviously, feed costs were favorable. What are some of the other movements in the gross margin line on an underlying basis? [indiscernible] understand what some of the essentially the offsets to the benefits you've had from lower feed costs?

Yes. So I think it's good that you're looking at underlying because gross profit at a stat level has the big ISV 16 move [indiscernible] as well. So if you then exclude that and look at underlying, it's probably if you go what's the biggest factor is just the lower volumes that we had in the first half, the PCP And then I think we've offset a little bit of that through some really good cost [indiscernible] But not fully accounting for the volume for that we've experienced in the first half versus PCP.

Thank you. The next question comes from Phil Kimber from EAND.

Hi, guys. Thanks for taking my question. Just a question I wanted to follow-up, I think Craig asked about New Zealand. Just wanted to know if that was sort of in line with your expectations because it's down quite materially on PCP. Now maybe that's a base effect. But add the benefit of Bostock, which you've called out, But there was no Woolworths loss volume in that market. So I was just wondering if there's that was sort of in line with your expectations and it's the big percentage year on year reduction is more about base effects than any other issue we should be concerned about? Hi, Phil.

Again, on an underlying basis, because a lot of the AASB 16 impact was actually in New Zealand in this period. [indiscernible] You're right, there is a net benefit of BOSSTOKS coming in.

It's did have some volume growth. It's probably you would have noticed we called out in the presentation that NZ dollars price declined 1.7% in New Zealand on the ex BOST stocks business. So that's probably the thing in New Zealand. How was that against expectations course, we would have rather not seen that. And we're also comping again, a really strong New Zealand half last year. So I think we're still pretty optimistic New Zealand is going to host a good result. For FY 2025.

Okay. And then just because it is really confusing with the growth rates just at face value look very strong required in the second half. And I think a lot of that is just base effects. But do you know you've still got a reasonable range there and you've got For three months or so to to go. What are the sort of key swing factors sort of between the bottom end and top end of your range over the next few months So just wanted to get a sense of that. Thanks.

So I assume when you're saying a heavy growth rate, comparing that to the second half in FY 'twenty four? [indiscernible] Yeah.

Called out seasonality. So just based on the numbers, low end of our range is 112 and high end of our range is 126 versus 124 in this half. So I think from a seasonality and historical perspective, that looks pretty in line. What are the swing factors? I think just sadly the normal parts of our business. So How do we go with securing that additional contract business that we're talking about where this fee price actually end up sitting in the second half What's the operational performance during the period? So I realize I have not been insightful at all telling you things you probably already know about the business, but there's nothing particularly tricky. It's just the normal business. Activities in the second half that will sit at somewhere in that range.

And on the fees, I is my last question. I mean, I would have thought you had fewer visibility on that now. If you had forward by three to nine months, and it's got to get through an inventory turn, So there's only three months left to go. Don't you sort of have pretty good visibility on your feed costs now, it's like? Can that be a factor from here? It can be a factor in 26, but I'm talking 25.

So not so much. And we talk about having forward cover between three and nine months. Which I guess is the same as up to nine months. So yes, largely we've got good visibility of fee costs in FY 2025. And FY '26 is more of a factor.

The next question comes from A. J. Mariswani from Macquarie. Please go ahead.

Hi, good morning, Ting. Just a question around QSR volumes.

Some feedback we've heard around the industry is QSR seems to have reached a bit of a turning point. And I know you guys called out that it has stabilized. When can we start to expect volumes to come back again?

Probably a question better directed to the QSR operators, but certainly Al did [indiscernible] They are feeling a bit more confident about their outlook, particularly over the balance of this calendar year. So we're seeing I might go into the specifics of customers, but we're seeing some improvement in some customer performance, which is encouraging. And certainly, the rate of the rate of decline has certainly bottomed out So we're hoping that we're at the worst of it at this point. And as we look forward, we can get back into growth there. And those customers are spending heavily on marketing and promotion, which we're supporting in terms of products and what have you. So look, I mean, with [indiscernible] Hopefully with some improved consumer sentiment, with maybe some more rate cuts over the next number of months, I think we can be confident that that sector of the market is going to be stronger as we move through the balance of this year and into next next fiscal year.

Thanks. And just around the fact that there's more and more QSR brands that are I guess, more chicken focused. And how you guys go about winning those contracts? What are you seeing around competitive intensity with those new or newer sort of QSR operators and how are you guys placed to win additional contract there?

Yes. Obviously, we're engaging with all of the all the players across the QSR market we've actually had some quite quite nice wins in recent times. So mean, The competitive intensity has no no not really different from how it's ever been. It's always hard won business, that's for sure. But we're in there talking to all of those customers. There are There are good options in the pipeline. And we're looking to get a reasonable share of of that growth as it starts to come back into the market, remembering we've already got very strong positions with with the well established players as well. So So I think that's an area to be optimistic about over the next twelve months.

Yes. And just final one from me around some of the costs around admin and selling.

It's down about $17,000,000 on the half Can you call out what the drivers are there? And are there more cost out opportunities in that In that area or other sort of line items? [indiscernible] mean, there's always opportunity but I wouldn't be banking in lots lots on that side. I think we had called out last year that we're a bit higher as well. So some of it's comping last year. Through. But yes, there's been a big focus there in the current year, but I wouldn't be factoring in a huge more amount coming through.

Thank you. The next question comes from Richard Amland from CLSA. Please go ahead.

Sorry, guys. Don't have a prepared question.

Now, Ari, thank you, Richard. Our next question is a text question from John Reid. John asks, on the balance sheet, [indiscernible] I think the receivables increased. Can you comment on this having regard to reduced revenue? Thanks, John.

We tend to have higher seasonality working capital at December versus June and that's largely back on a large sales period in [indiscernible] why you would see a disconnect between those two, which we see correct itself at the full year end. Hope that helps.

Thank you. As there are no further questions, I will hand back to Andrew to close the meeting.

Thank you. I appreciate everyone joining us this morning and some of you will talk to later in the day. So again, on behalf of our team, thank you for joining us today and we'll talk further.